2019 (1) TMI 88 - AT - Income Tax

Allowable busniss expenses - expenses incurred by assessee for money lending activities - Held that - On perusal of grounds raised by assessee before Ld. CIT (A), it is observed that assessee has not challenged the change of head by Ld.AO regarding interest income. Therefore in a way assessee has accepted interest income to be treated as income from other sources. On a query being put up by the Bench to Ld.AR, it has been submitted that consciously assessee has not disputed this issue before CIT(A) and also before this Tribunal. Therefore, in our considered opinion, the argument advanced by Ld.AR, of considering expenses incurred by assessee also for money lending activities stands rejected. Further even before CIT (A) assessee has neither filed any bills/vouchers nor provided sufficient evidences in order to prove the business exigency for incurring such expenses. Coming to expenses alleged to have been incurred in respect of sub-lease agreement set aside this issue back to AO for verification. Assessee is directed to produce lease Agreements before Ld.AO in connection with the demised premises therein, along with bills/vouchers in respect of expenditure incurred towards sub-lease premises which are alleged to have been incurred by assessee. The Ld.AO is then directed to verify the same as per law, and if found genuine as per sub lease agreement entered into by assessee with LIC, may allow the claim of assessee. Addition u/s 68 and section 69 - Held that - Assessee has placed certain receipts in respect of payments made to some parties. AO has objected to these documents as these are not verified. Assessee has not established that all deposits made in bank accounts were in respect of cancellation of deals as has been alleged by assessee - assessee submitted regarding opening cash balance which was accepted by authorities below in immediately preceding year - direct assessee to produce all the parties with whom deals were cancelled and money has been deposited in bank accounts. AO is directed to take into consideration opening balance appearing in books of accounts of assessee, before verifying identity, creditworthiness and most importantly genuineness of transaction, that has been alleged to have been cancelled, in lieu of which, cash were deposited back into the accounts. Insofar as the withdrawals are concerned assessee is directed to reconcile the statement of withdrawals with deposits into bank accounts maintained by assessee. In the event the co- relation of withdrawals with the deposits is successfully made by assessee in terms of the deals that has been cancelled, no further enquiries need to be made by AO. On the contrary, if there are certain cash in hand/deposits in bank, for which there is no corresponding withdrawal, assessee is directed to establish source of such cash/deposits in the bank to the satisfaction of AO as per section 68 of the Act, which means assessee is directed to establish identity, creditworthiness and most importantly genuineness of cash deposited in bank as well as cash in hand. AO shall then verify the same as per law. Addition u/s 69 - CIT (A) has observed that a sum of ₹ 55,35,000/-was put on FDR on 07/05/07 which was renewed from time to time. During year under consideration the renewal was of ₹ 17,29,245/-and FDR was closed on 21/09/09. Under such circumstances we do not find it a fit case for an addition under section 69, as during relevant Assessment Year in which deposit was initially made, the authorities has accepted the same.

Summary

Issues involved:
1. Allowing expenses without direct attribution to income
2. Deletion of additions made under sections 68 and 69 of the Income Tax Act

Analysis:

Issue 1: Allowing expenses without direct attribution to income
The Assessing Officer (AO) disallowed expenses claimed by the assessee as unverified and treated rental income as net business income. The AO also disallowed a sum paid towards lease without TDS deduction. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted certain additions after considering additional evidence submitted by the assessee. The Revenue challenged the order before the Appellate Tribunal.

The Revenue argued that the CIT(A) erred in allowing expenses without verifying lease agreements and supporting evidence. The Revenue doubted the genuineness of the expenses claimed by the assessee. The assessee contended that the expenses were related to money lending activities and were debited against interest income treated as business income in previous years.

The Tribunal observed that the assessee did not challenge the change in head regarding interest income, indicating acceptance of it as income from other sources. The Tribunal found that the assessee failed to provide bills or vouchers to prove the business necessity of the expenses. The Tribunal noted discrepancies in the sub-lease agreement relied upon by the CIT(A) and the agreement presented in the record. The Tribunal directed the AO to verify the lease agreements and expenses claimed by the assessee before allowing the deductions.

Issue 2: Deletion of additions made under sections 68 and 69
Under section 68, the AO made additions for unexplained cash deposits and cash in hand. The CIT(A) deleted these additions based on additional evidence submitted by the assessee. The Revenue contended that the CIT(A) did not verify the genuineness of the transactions and the parties involved.

The Tribunal directed the assessee to produce parties with whom deals were allegedly cancelled and money deposited in bank accounts. The AO was instructed to verify the identity, creditworthiness, and genuineness of the transactions. In the case of term deposits under section 69, the Tribunal found that the deposits were made in the past and renewed, thus dismissing the addition made by the AO.

In conclusion, the Tribunal partly allowed the appeal filed by the Revenue, directing further verification by the AO in both issues.